Bankruptcies, debt relief, the death of the economy: How are the U.S. and Europe coping with the economic crisis?
The U.K.’s largest bank is facing a potentially $1 billion loss, the world’s second-largest company has warned, as the fallout from the U,S.
financial crisis continues.
In the wake of a global stock market rout and a record-high unemployment rate, British retail lender First Direct is expected to report a loss of between £10 million and £20 million this year and a loss in its value of £300 million or more by the end of 2020, according to its chief executive.
The bank will need to restructure its debts to make up the shortfall, and also pay back the government about £500 million ($770 million) in debt that was guaranteed by taxpayers when it was rescued from receivership.
The announcement comes as First Direct reported its worst-ever first-quarter loss of £2.9 billion, or $3.6 billion.
The company is now being sued by creditors in England and Wales over its handling of a massive, £3.4 billion loan, which was written off by the government after the bank defaulted on payments.
First Direct has said it will repay about half of the loan, but that is still expected to cost taxpayers more than £500 mln ($8.3 billion).
In a statement, First Direct said it was facing the worst economic downturn since the Great Depression and was unable to sustain a business strategy to keep pace with inflation, a condition that could have forced it to declare bankruptcy.
The British government is now looking at whether it should intervene to help First Direct’s creditors, but First Direct will not be able to seek relief under the European Union’s rescue package that allows taxpayers to bail out insolvent companies.
The European Union on Tuesday approved a bailout package that will allow European banks to recapitalize themselves in the event of a crisis and could potentially help First Credit’s creditors.
The agreement includes a plan for First Credit to repay about 40 percent of its outstanding debt, but the bank said it could still need up to £500.5 million from the European Central Bank to do so.
The rescue package has already been approved by the European Parliament, but European governments must now agree on a plan to deal with the fallout.